29 Lower Rate Tax On Savings

Resolved,

That the Income and Corporation Taxes Act 1988 shall be amended as follows—

(1) After section 1 there shall be inserted the following section— ['APPLICATION OF LOWER RATE TO INCOME FROM SAVINGS]

1A.—(1) Subject to sections 469(2) and 686, so much of any person's total income for any year of assessment as—

(a) comprises income to which this section applies, and

(b) in the case of an individual, is not income falling within section 1(2)(b),

shall, by virtue of this section, be charged for that year at the lower rate, instead of at the rate otherwise applicable to it in accordance with section 1(2)(aa) and (a).

(2) Subject to subsection (4) below, this section applies to the following income—

(a) any income chargeable under Case III of Schedule D other than—

(i) relevant annuities and other annual payments that are not interest; and

(ii) amounts so chargeable by virtue of section 119 or 120;

(b) any income chargeable under Schedule F; and

(c) subject to subsection (4) below, any equivalent foreign income.

(3) The income which is equivalent foreign income for the purposes of this section is any income chargeable under Case IV or V of Schedule D which—

(a) is equivalent to a description of income falling within subsection (2)(a) above but arises from securities or other possessions out of the United Kingdom; or

(b) consists in any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom.

(4) This section does not apply to—

(a) any income chargeable to tax under Case IV or V of Schedule D which is such that section 65(5)(a) or (b) provides for the tax to be computed on the full amount of sums received in the United Kingdom; or

(b) any amounts deemed by virtue of section 695(4)(b) or 696(6) to be income chargeable under Case IV of Schedule D.

(5) So much of any person's income as comprises income to which this section applies shall be treated for the purposes of subsection (1)(b) above and any other provisions of the Income Tax Acts as the highest part of his income.

(6) Subsection (5) above shall have effect subject to section 833(3) but shall otherwise have effect notwithstanding any provision requiring income of any description to be treated for the purposes of the Income Tax Acts (other than section 550) as the highest part of a person's income.

(7) In this section "relevant annuity" means any annuity other than a purchased life annuity to which section 656 applies or to which that section would apply but for section 657(2)(a)."

(2) In section 4, after subsection (1) there shall be inserted the following subsection—

"(1A) As respects deductions from, and tax treated as paid on, any such amounts as constitute or (but for the person whose income they are) would constitute income to which section 1 A applies, subsection (1) above shall have effect with a reference to the lower rate in force for the relevant year of assessment substituted for the reference to the basic rate in force for that year."

(3) In section 326B—

(a) in subsection (2)(b)(ii), for the words from "basic rate on" to the end of the sub-paragraph there shall be substituted "applicable rate on any interest or bonus paid on the account before that time;" and

(b) after subsection (2) there shall be inserted the following subsection—

"(2A) In subsection (2)(b)(ii) above "the applicable rate" means—

(a) in the case of interest or bonus paid before 6th April 1996, the basic rate for the year of assessment in which the payment was made; and

(b) in any other case, the lower rate for the year of assessment in which it was made."

(4) In section 350, in subsection (1), for "basic rate" there shall be substituted "applicable rate"; and after that subsection there shall be inserted the following subsection—

"(1A) In subsection (1) above "the applicable rate" means the rate which is applicable to the payment under section 4."

(5) In paragraph (a)(i) of subsection (2) of section 582, for "basic" there shall be substituted "applicable"; and after that subsection there shall be inserted the following subsection—

"(2A) In subsection (2) above "the applicable rate", in relation to a year of assessment, means whichever of the basic rate or the lower rate for that year is the rate at which the person by or through whom the bonds are issued would have had to deduct income tax from the amount of interest in question if that amount had been actually paid by or through him."

(6) In subsection (I) of section 737, after "shall apply" there shall be inserted "(subject to subsection (1A) below)"; and for subsection (1A) of that section there shall be substituted the following subsection—

"(1A) The deduction of tax which is deemed to have been made under subsection (1) above shall be taken to have been made at the lower rate as if the deemed annual payment were income to which section IA applied; and—

(a) the reference to the applicable rate in subsection (1) of section 350, so far as it has effect by virtue of subsection (1) above, and

(b) Schedule 16, so far as it so has effect,

shall be construed accordingly."

(7) In section 737C(6), for "basic" there shall be substituted "lower".

(8) In Schedule 3—

(a) in paragraph 1(c), for "basic" there shall be substituted "lower"; and

(b) in paragraph 6A—

(i) in sub-paragraph (1), for "applicable" there shall be substituted "lower"; and

(ii) sub-paragraph (4) shall cease to have effect.

(9) Paragraphs (1) and (5) to (7) of this Resolution have effect in relation to the year 1996-97 and subsequent years of assessment, paragraphs (2), (4) and (8) of this Resolution have effect in relation to payments on or after 6th April 1996, and paragraph (3) of this Resolution has effect as respects withdrawals on or after 6th April 1996.

(10) Where any subordinate legislation (within the meaning of the Interpretation Act 1978) falls to be construed in accordance with section 4 of the Income and Corporation Taxes Act 1988, that legislation (whenever it was made) shall be construed, in relation to payments on or after 6th April 1996, subject to subsection (1A) of that section.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

Volume 268: debated on Tuesday 5 December 1995